Misconceptions of Loan Against Property, Know How to Avoid?


Loan Against Property or LAP is availing loan by keeping your property as collateral with any financial institution. Being one of the oldest and leading ways to raise money, LAP comes with a lot of benefits like low-interest rates, long repayment tenures, flexible payment options, and more. For Loan Against Property, documents required to be verified for ownership are followed by the loan amount. 

However, few misconceptions are circling this age-old tested method. Here are a few mistakes that are often associated with Loan Against Property Online.

Only Residential properties are deemed eligible for LAPs

While residential properties are more often used as collaterals, commercial properties are equally accepted by every bank and financial institution as well. People misunderstand this because commercial properties are used less and yield less sanction amount as compared to residential assets. 

The principal amount of the loan is calculated on buying price of the property 

There are a plethora of factors that influence the loan sanctioned amount. These can be the circle rate of the property, the condition, financial history of the owner, along with other substantial factors. A thorough assessment is done, and a particular loan amount is given to the collateral property. Generally, the standard process is that the lender restricts to offer the entire amount of the property and keeps a margin for his financial security. Hence, the loan amount is always lesser than the collateral’s value. 

The lender takes full control of the property after granting the loan 

It is a common misconception that keeps people from getting the benefits of LAP. The borrower is allowed to keep the full ownership of the collateral property. However, the loan against property documents are submitted to the lender, and he can take control if there is any default by the borrower. 

High Credit score indicated guaranteed approval in loans

While having a decent credit score is a viable factor in getting loan approval, it is not the prime thing that ensured surety of the same. There are other factors like the borrower’s income, obligations, the industry that he operates in amongst other things that contribute to the approval as well. 

Getting low-interest rates is everything

People are often confused about the fact that interest rates are not the only amount they need to pay. Other aspects like the processing fee, legal counsel fee, accounting fee etc. also add up to the cost. Sometimes people miss the most value of money proposition due to neglecting the other fees and end up paying.

Prepayment is the best strategy

Prepayment can be a great strategy, but only when the circumstances are right, the borrower must compute if the interest rate on the invested money is higher than the loan interest. If positive, then it is ideal to continue with the loan and hold the thoughts on prepayment for the time.